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M-Pesa and the Livelihood of Kenyans

Authors: Bhavika Agrawal and Wei Hong Yeo

Research Director: Keeven Cheong Aik Wei

Source: Visa and Kenya’s Safaricom partner on M-Pesa, payments and tech, TechCrunch, Bright (2020)


M-Pesa prides itself on being the largest digital banking service in Africa (Vodafone, n.d.). Having provided for more than 51 million customers in the region remittance services, many users can send and receive money that was once inaccessible to them as a result of limited access to banking services and safety considerations. M-Pesa is also regulated by a financial institution, the Central Bank of Kenya (Safaricom, n.d.), boosting customer confidence in M-Pesa's financial services.

To utilise M-Pesa remittance services, customers can register at authorised distributors like mobile phone stores, or even barbers (Vodafone, n.d.), without having to own a bank account (Piper, 2020). Customers then can start transferring money once they have deposited cash and have set up a PIN, for which the money can be transferred to the recipient instantaneously.

In this article, we strive to explore the origins and motivations of M-Pesa, the circumstances in which M-Pesa was founded, as well as the impacts of M-Pesa. Lastly, we conclude by evaluating the success formula adopted by Kenya which made M-Pesa so successful, to address the question of whether the implementation of a similar structure in other developing nations alleviates their poverty.

Context: Kenya before M-Pesa

Before the advent of mobile phones, there were substantial constraints that inhibited the financial management of Kenyans. As Kenya is geographically large, banks were far away from Kenyan citizens. This results in them either holding on to cash, making a trip to local banks, or sending it through couriers, which was very risky as it is subjected to theft (Kiti & Nairobi, 2012). Furthermore, households without access to mobile money have no safety net for them to fall back on should they experience any consumption shocks, which refers to a situation where households have to go without basic needs when their income falls (Vox, 2020). According to Jack & Suri (2014), households without access to mobile money suffer about 7 percent reductions in consumption when faced with negative income shocks, but those with access to mobile money can smooth the effects of these income shocks completely.

The initial purpose of M-Pesa was to promote “sustainable development” (Hughes & Lonie, 2007), where transactions involving a small amount of money between microfinance institutions (international charities and NGOs) and creditors (low-income people in Kenya) are facilitated (Morawczynski, 2009; Vox, 2020). However, during the prototyping phase, an interesting finding was reported - Kenyans were harnessing M-Pesa to transfer cash, apart from just phone credit (Vodafone, n.d.). Furthermore, it was also reported that households preferred to make the transfer themselves, citing that the transfer of money, goods, and services often failed to reach the recipients.

Figure 1: Years required for a specific technology to reach 80% of the population. Source: Jack & Suri (2011)

Figure 2: Number of subscribers for fixed lines versus mobile lines, M-PESA users, and first cell phone use. Source: Jack & Suri (2011)

Mobile phone penetration is another factor that has fuelled the uptake of M-Pesa. According to the World Bank (2011), mobile phones triumphed in the race for technological adoption in Kenya. Mobile phones took less than 20 years to reach 80 percent of the populace, which was approximately 6 times faster than the adoption of more established technologies like the railway, which took slightly more than 120 years (see Fig.1). Furthermore, according to a study done by Jack & Suri (2011), mobile lines and first cell phone use have risen exponentially after the mid-1990s, when mobile phone companies were established (see Fig.2).

The launch

Morawczynski (2009) aptly describes the problem Kenyans faced when performing domestic remittance on other channels as a “gap in the market”. Safaricom responded to the gap by identifying “send money home” as a unique selling proposition and has devised a competitive pricing strategy that targets remittance costs. Trust is also created as M-Pesa is affiliated with the brand Safricom (Morawczynski, n.d.), on top of it being backed by stakeholders.

Other than a robust business plan, the agent network was also pivotal in the subsequent success of M-Pesa (Suri & Jack, 2016). An M-Pesa agent is a distributor of M-Pesa service, where customers can activate and deposit their cash in exchange for M-Pesa credits. The agents are located in petrol kiosks, banks, and even small shops. Moreover, In Suri & Jack’s (2016) study, they asserted that agent density, which refers to the number of agents within a 1km proximity, is strongly correlated to the number of households that were raised out of extreme poverty. This shows that the strategic allocation of manpower resources - which are the agents in this case - has a bearing on the accessibility of M-Pesa’s services. Furthermore, public policies that regulate the agent network had allowed banks and telecommunication companies to participate as an agent which has significantly increased the number of agents (Suri & Jack, 2016), further increasing the sustainability of M-Pesa’s business model and its reach to the populace.

Additionally, Hughes & Lonie (2007), who were pioneers of the M-Pesa movement, highlighted the commitment by stakeholders was essential in the establishment of M-Pesa in a personal account. Hughes & Lonie (2007) detailed how the U.K. Department for International Development (DFID), network operators, microfinance institutes (MFIs), commercial banks, and local Kenyan regulatory board played a supportive role in providing a legal and operational framework for M-Pesa to discharge its financial duties ethically and responsibly while holding it accountable as a financial institution. Furthermore, Safricom also sets out a comprehensive list of requirements that an agent must fulfill to be appointed as an authorised M-Pesa agent (Safaricom, n.d.), increasing their credibility which many Kenyans were concerned about.


The country’s financial system was in shambles before M-Pesa was introduced in 2005. The idea of a mobile banking network was simple, but the impact on the society and economy was profound. The benefits of safe depositing, sending and transaction money, coupled with the greater incentive for saving through safer protection, pushed the Kenyans to embrace the habit of saving and investing.

The nominal effect on individual savings was fairly small, with each household likely saving up to 10 cents per day. However, when aggregated, the same savings has the effect of lifting thousands above the extreme poverty threshold. According to a study conducted by Suri and Jack (2016), access to the mobile money system lifted 194,000 Kenyans, or 2% of Kenyan households, out of poverty.

Apart from a direct impact on real income, it also had direct repercussions on factors such as food security, health care, and sustainable investments. M-Pesa has been successful in enhancing food security by facilitating time-sensitive money transfers, spreading risks across geographic regions, making users creditworthy, and by boosting local production of food and purchases of goods and services (Haas, 2011). In a developing nation, where food insecurity causes hundreds of deaths per year, M-Pesa acted as a stimulus from the demand as well as the supply side of the issue.

As of 2005, 46% of healthcare expenses were borne by households (Haas, 2011). In an impoverished country, where individuals are hardly able to afford a three-time meal, ease of access to healthcare was a far-fetched dream. With the introduction of M-Pesa, households could now fall back on the savings they collected as ‘emergency money’ to avail immediate necessary treatment. Moreover, it was a platform where they could receive funds from their family and friends with greater ease. Overall, the general public witnessed an improvement in their health and ease of access to earlier, inaccessible healthcare.

As a direct result of increased savings, Kenya observed a surge in investing in small businesses by the rural population. With more money in hand, individuals are more likely to take up risks in starting businesses. A study conducted by Wieser (2019) found that mobile money increased remittances and non-farm self-employment (that is, the rate of people starting small businesses).

Besides the above-mentioned impacts, there is also a fringe benefit of M-Pesa; it has improved people’s livelihood by creating employment opportunities. The number of agents working under Safaricom has been increasing every year, with over 160,000 agents spread across the nation as of January 2022.

Figure 3: Line chart showing the y-o-y increase in the M-Pesa users and agents. Source: Research Gate (2019)

There is no set formula for fixing global poverty. However, in Kenya’s case, mobile banking has acted as a simple yet extraordinary tool for improving their standard of living. Within years of its implementation, it has radically changed its society, but the question remains: why isn’t every developing nation, experiencing the same situation, simply introducing a similar system?


Regardless of the few shortcomings witnessed in Kenya, other African countries have tried to replicate the success of M-Pesa in their communities by introducing similar software for mobile banking. Uganda has SmartCash and Senegal has Wave to provide their citizens with the benefits. However, they have been unable to reach the heights of success that M-Pesa did in Kenya, largely due to two factors: government intrusion and the spread of the agents (Vox, 2020).

Niger witnessed a slow death of its mobile banking due to the chicken and egg problem associated with a platform requiring network effects: agents need to be widespread for the platform to be successful but employing agents in large numbers warrant a successful platform (Vox, 2020). Moreover, in other countries, governments have crippled these fin-tech companies on the lines of protecting their traditional banking institutions.

In conclusion, M-Pesa’s success was a culmination of several factors. Kenya had people with the right mindset, willing to give mobile banking a chance. The government also supported them and introduced the system when the infrastructure was strong.

While it is true that the success of a program like M-Pesa may differ owing to different circumstances in individual countries, mobile banking can act as a powerful tool for economic development if a country can ensure that the risks associated with failure are adequately mitigated.


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